As recently approved by the Office of the Council of State, the One Person Company Act (“Act”) is finally near its official enforcement after the first draft in 2017. According to the Act, a one person company is a type of juristic person established for profit-seeking purposes with an ordinary person as a sole capital contributor, who shall not be liable more than the registered capital of the company. In essence, the Act provides a new regime in which a company is allowed to be incorporated solely by one person with only one shareholder, as opposed to former concepts of limited company under the Thai Civil and Commercial Code (“TCCC”). This expansion of legal framework aims to promote a new type of business organization which is more compatible with the evolving development of trade and investment and to facilitate ease of business operation for the benefits of the Thai economy as a whole.
In this regard, this article will provide an overview of the fundamental concept of a one person company, a conceptual comparison to the traditional limited company under the TCCC, as well as our overall analysis concerning this new type of business organization.
The core concepts that create striking differences between a one person company and a limited company under the TCCC are the processes of incorporation and formal requirements regarding the company management.
Similar to limited companies, a one person company shall be incorporated by registration, and upon the completion of registration, shall be established as a juristic person with its own rights and liabilities. Once registered, a corporate suffix of a one person company will be titled as “Limited Company (Sole)”.
Capital Contributor: The incorporation of a one person company merely requires one person as a capital contributor to set up the entity, as opposed to the limited company under the TCCC which requires at least three promotors. The capital contributor shall solely fund the company’s captial. Each person cannot be a capital contributor for more than one company unless otherwise stipulated in ministerial regulation which may be issued subsequently.
Capital Payment: To fund the company, the capital contributor has options to pay for the registered capital in cash or in assets. For cash contribution, the capital contributor shall pay the capital in full before the registration. For the contribution of assets, the capital contributor is obliged to transfer such assets to the company within 90 days from the date of registration.
Certificate of Contribution: After registration, the company shall issue a Certificate of Contribution, as a document representing the right of the capital contributor over the company. The issued Certificate shall at least consist of the name of the company, the name of the capital contributor, date of Certificate issuance, and the amount of registered capital. This Certificate can be transferred and pledged, subjected to the conditions stipulated by the Act. Conceptually, this Certificate is comparable to a share certificate of a limited company under TCCC.
Operation and Management
The core concept of the one person company is the centralization of management by the capital contributor. Under the Act, the capital contributor is entitled to manage the company as a manager, receive a dividend, and receive a capital return in case the company will be dissolved or liquidated. As an overall observation, it can be roughly concluded that the role of capital contributor in a one person company has combined functions between a shareholder and a director in a limited company.
Company Manager: By virtue of the Act, the capital contributor shall be the manager of the company, who is an authorized representative of the company that has duties to operate the company in accordance with the law, objectives, and regulations of the company. His managerial position shall be vacated upon bankruptcy or adjudication of his incapacity.
In this regard, the capital contributor may appoint other persons as managers or joint managers, and he shall be entitled to remove the appointed manager upon his discretion. In case of multiple managers, each manager shall have equal rights and duties to manage and act on behalf of the company and the resolution of the managers shall be resolved by majority vote. In comparison to the limited company under the TCCC, many formal management requirements are absent, such as regulations regarding shareholders’ meeting or the board of director’s meetings.
Dividend and Reserve Fund: Similar to a concept of a limited company under the TCCC, a one person company can only distribute dividends out of profit, and it shall be prohibited to distribute a dividend if the company still has accumulated loss. The company shall reserve 5% of its annual net profit for the reserve fund until the fund reaches 10% of the registered capital of the company.
Financial Statements: The company shall prepare and submit financial statements as per the relevant laws regarding accountancy. Exemptions for compliances with certain accounting standards might be applicable, depending on the size and conditions of such company.
Other Essential Legal Issues
Transformation into Limited Company A one person company can be transformed into a limited company by dividing total registered capital into shares of equal value and arranging a share subscription as per the requirements for the incorporation of a limited company under the TCCC. In this regard, the company must notify all creditors in writing. The new set of board of directors shall arrange the registration for the incorporation of the limited company as per the prescribed regulations, and the company shall cease to exist upon such transformation.
Dissolution A one person company shall be dissolved upon the occurrence of circumstances stipulated by the Act, including but not limited to an expressed intent of the capital contributor, a multiplicity of the capital contributors, a company’s bankruptcy, and a court order for dissolution in case of company’s failure to commence its operation. In these events, the capital contributor or the manager shall register for the dissolution of the company within 14 days from the date of these occurrences.
Comparison to Limited Companies under TCCC
|Issues||One Person Company under the Act||Limited Company under TCCC|
|1. Number of persons to set up the entity||1 person as a capital contributor||3 persons as promotors|
|2. Shareholder||1 capital contributor with limited liability to the amount of his contribution||3 shareholders with limited liability to the amount of unpaid shares capital|
|3. Corporate Suffix||Limited Company (Sole)||Limited Company|
|4. Management Person||Manager(s)||Board of Directors|
In all, it is obvious that this type of business organization provides a much more simplified incorporation process of a juristic entity and allows less complicated formal requirements for the management of the established corporation. With this due consideration, the Act provides ease of business operation, while still essentially protecting the capital contributor under the doctrine of limited liability. In this regard, this business structure will especially benefit small businesses and offer a new alternative to those corporates which are currently resorting to their equity nominees.
Notwithstanding this conceptual and theoretical analysis, we still need to await further amendments to the draft of this Act upon subsequent considerations by the Cabinet and the Parliament under the legislative procedure. Consequently, the anticipated date for the official enforcement of this Act remains unconfirmed.